Contractors Liability Insurance – What is it, why you need it, and what you need to know about it.

These three words sound rather ominous, don’t you think? Contractors Liability Insurance. Sounds like something unneeded that the government probably requires contractors running their own firms to have. Don’t fret. I’m going to tell you all about it, and make sure that you’re fully in the know.


What is it?

So what is it, really? Contractors Liability Insurance, also commonly known as Employers Liability Insurance, basically covers a company, your company, for claims resulting from the injury or death or an employee.

So let’s say you’re a contractor. You run your own firm. Maybe you’ve got 10 plumbers under you, or 20 construction workers. Perhaps you only have 3 roofers working under your firm, replacing roofing and tiling every day. You might not even be in a physically labour intensive job function. Even house and carpet cleaners, freelance writers, editors, graphic designers, and hairstylists and salon professionals require Contractors / Employers Liability Insurance.

Now, if any of your employees has a work-related accident and is injured, or unfortunately, dies, the contractors liability insurance will kick in.

It will do two primary things. Firstly, the insurance will pay for the legal defence for these afore-mentioned claims. You don’t need to worry about lawyers and court fees, as the insurance policy will handle all that. Secondly, if the policyholder, that is, you, is found responsible or liable for the employee’s injury or death, the insurance policy will then come in with the required payout.

Additionally, Contractors / Employers Liability insurance also covers property damage. If you, or one of your employees, accidentally or otherwise causes damage or destruction to property belonging to others, the insurance will also cover the costs of compensation.


Why do you need it?

If you’re a contractor that owns a Limited company, most of the time, the law requires you to carry an Contracts / Employers Liability policy. There is a legal penalty in the form of heavy fines, if it is discovered that you are not covered by such an insurance policy.

There are also multiple other circumstances that will trigger a “lawfully required” status for a contractor’s firm – You can find all the details from the U.S. Small Business Administration, the National Federation of Independent Businesses, and the IRS website. These three organizations have all the necessary resources for you to find out your rights, your responsibilities, and more importantly, what you need to do to protect your business, your employees, and yourself.

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Aside from the law requiring you, it must be said that it is really an issue of ethics. Most contractors firms carry out rather labour and physical intensive work, where there is a real risk of injury or death as part of the work hazard. In the event of an employee possibly being injured or worse, there is a real problem for the employee’s family in terms of finances. As an employer, having Contracts / Employers Liability policy really shows that you care about your employees, and of course, whilst the best outcome involves zero injuries or deaths at your workplace, in the worst case scenario, your employees and their families are protected.

Additionally, it is important to note that this Contracts / Employers Liability doesn’t just cover your employees. For example, imagine if you were running a construction site building a new residential complex, and one of your workers left a loose wire lying around. If someone tripped over that wire, they could sue your firm for damages if they were injured. As long as your work or employees have some form of contact with the general public, this is something you need to know and be aware of. Most, but not all forms of Contracts / Employers Liability covers this particular aspect of contact with the general public – So you’ll have to clarify with your insurance provider, or would-be insurance provider if they provide this particular line of protection.

Most forms of Contracts / Employers Liability insurances cover your workplace. That is, your work environment. Therefore if you run a plumbing firm, your plumbers are covered when they visit your clients properties, even if your 10 plumbers visit 100 locations a day. Same thing goes for a construction firm, although the construction site your employees are working on is technically not “your” site, the policy will typically cover it too as it is considered the “work environment” for your employees. Of course, various insurers have various clauses and limitations, so as mentioned before, please be sure to double check this.


What you need to know about it.

  • Despite the public view, insurance isn’t really expensive. Insurance is accordingly more affordable/expensive with the pay outs that are associated with it, so if you obtain an insurance policy that has a smaller pay out, you will accordingly pay less. The amount of coverage you need tends to logically increase as your business, and profits increase, so you should never find yourself in a situation where you are paying more than you reasonably need to.
  • More and more clients are demanding insurance in recent times. Alongside the growth and awareness of equal rights for men and women, heterosexual and homosexual couples, clients increasingly see a certain amount of corporate social responsibility in making sure that their contractors are suitably protecting their employees. Just look at how well fair trade coffee is doing in the market now. For those not in the know, fair trade coffee ensures that the coffee growers are paid industry standard rates – They are paid fairly for their coffee. This is in contrast to various other places in the world where the farmers are paid a pittance, simply because they don’t have the money or knowledge to fight back and claim a fair price. Fair trade coffee is becoming more and more popular now, being supported by various large chains, including the ever present Starbucks.
  • If you ever get into a situation where one of your employees is injured or has died due to a work-related accident, and you don’t have coverage, the resulting penalties, fees, and compensation is more than likely to end up shutting your business down. In this situation, it’s a case of being safe is better than being sorry. It only takes one injury or death to end your business.
  • If you’re feeling confused and overwhelmed by the sheer number of insurers and policies on the market, there are free websites that help you search a whole database of them at one go. Once you input your required needs, the websites can filter and aggregate all the data available, ensuring that you can obtain all the potential results and insurers that fulfil your requirements.


Written by: John Brown
John has more than 25 years of experience in the insurance industry. He grew from a star insurance producer to owning one of the largest agencies in the country; he's a reference regarding contractor's insurance, commercial insurance, and builders' risk insurance.